What Employers Need to Know about the Fair Credit Reporting Act
If you use a third party to conduct background checks, then you have probably heard of the Fair Credit Reporting Act (“FCRA”). The FCRA is a federal law that imposes several very specific obligations on employers who use third parties to conduct background and reference checks on applicants and employees. Although the FCRA has many nuances, the basic obligations are as follows:
Step 1: Disclosure and Authorization
Prior to obtaining a “consumer report” (e.g., a background check) through a third party, an employer must provide the applicant or employee with a “clear and conspicuous” written disclosure letting him/her know that a consumer report may be obtained on him/her for employment purposes. See our previous post of December 5, 2012 where we discuss the new forms under the FRCA. (For employers located in California, the disclosure obligation also must include the name, address and telephone number of the third party preparing the report, as well as the nature and scope of the investigation requested, and otherwise comply with California state law.)
In addition, an employer also must obtain written authorization from the applicant or employee to obtain the consumer report. (For employers located in California, Oklahoma and Minnesota, the applicant/employee also must be given the option to check a box indicating that he/she wishes to receive a copy of the consumer report.) The disclosure and authorization may be combined into one single document.
Finally, employers must bear in mind that additional disclosure requirements apply if the consumer report will be an “investigative consumer report” (i.e., will include an investigation into the employee/applicant’s character, general reputation, personal characteristics or mode of living).
Step 2: Pre-Adverse Action Notice
If an employer decides to take “adverse action” (e.g., deny employment, demote, etc.) against an applicant or employee based in whole or in part on a consumer report or investigative consumer report, then the employer must provide the applicant or employee with (a) a copy of the consumer report or investigative consumer report upon which the adverse action is based, and (b) a description of the applicant/employee’s rights under the FCRA, as set forth in a government-authored document entitled “A Summary of Your Rights under the Fair Credit Reporting Act.” This notice must be provided to the applicant/employee sufficiently in advance of the adverse action (at least five working days) so that the applicant or employee has a reasonable opportunity to dispute the information contained in the report.
Step 3: Adverse Action Notice
If an employer still intends to follow through with the adverse action after providing the applicant/employee with the pre-adverse action disclosures listed above and giving the applicant/employee reasonable time to dispute the information contained in the report, it must send the applicant/employee follow-up written notification that it is, in fact, taking adverse action against them based, in whole or in part, on the information contained in the consumer report or investigative consumer report. This “adverse action notice” must be accompanied by another copy of the document “A Summary of Your Rights under the Fair Credit Reporting Act.”
Exception for Employee Misconduct Investigations
Fortunately, not all of these steps must be taken when an employer uses a third party to investigate employee misconduct or noncompliance with laws, rules, regulations or policies. In fact, in order to maintain the integrity of the investigation, employers are only required to provide the employee with a summary of the nature and substance of the report upon which an adverse employment action (i.e., termination) was based.
Employer Liability for Noncompliance with the FCRA
An individual who believes that his/her rights under the FCRA have been violated may bring a civil action – including a class-action lawsuit – against the allegedly noncompliant employer or other entity. For negligent noncompliance, actual damages, attorneys’ fees and court costs may be awarded to successful plaintiffs. For willful noncompliance, punitive damages also may be imposed. The Federal Trade Commission also may bring administrative actions based on alleged FCRA violations.
One Last Word of Caution: Many States Have Their Own Versions of FCRA
As if complying with the federal FCRA wasn’t burdensome enough, many states have enacted fair credit reporting laws that impose obligations above and beyond those required by the FCRA. The FCRA provides that similar state laws must be followed “except to the extent that those laws are inconsistent with any provision of this title, and then only to the extent of the inconsistency.”
For more information on the FCRA and its application to your organization, please contact Jonathan Bumgarner at jbumgarner@wp.hallrender.com or your regular Hall Render attorney.
